S&P Global Ratings upgraded Natural Resource Partners LP's corporate credit rating from CCC+ to B- and assigned a B- issue-level rating to the partnership's new $346 million senior unsecured notes.
In a May 30 research note, analysts said the coal producer recently extended about $500 million of debt maturities until 2022 — a transaction viewed as credit positive — and increased its liquidity in the first quarter of 2017.
The analysts said the transaction "resolved a number of primary concerns" including upcoming maturities consisting of $425 million of unsecured notes due in October 2018 and $210 million outstanding under the old $300 million NRP revolving credit facility due in June 2018.
NRP President and COO Wyatt Hogan said in a May 10 earnings release that the first quarter of the year had been "transformational" for the company. NRP reported net income attributable to the common unit holders and general partner of $14.3 million for the quarter.
"The positive outlook reflects our view that over the next 12 months NRP will improve its adjusted leverage to below 5x and coal industry fundamentals including prices and demand will stabilize," the research note said. "We also expect NRP's operating performance to improve, driven by increasing cash flows from the coal royalties segment due to the elevated international metallurgical coal prices and modest domestic volume recovery in the Illinois Basin, partially offset by lower price realizations in the Appalachian thermal coal assets."
S&P Global Ratings also raised its issue-level rating on the company's existing senior unsecured notes to B- from CCC- and removed the rating from CreditWatch, where it was placed with positive implications on March 1; the recovery rating was revised to 4 from 6.
The analysts said NPR's key business risks include high customer concentration in the coal royalty segment, including Foresight Energy LP and Alpha Natural Resources Inc., exposure to highly volatile met coal prices and decreasing competitiveness of Central Appalachian thermal coal.
"These factors are partially offset by the company's long-term coal leases that require minimum royalty payments even if no mining activity occurred, which provides downside protection," the report said.
S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.